The Bank of Thailand plans to permit gold traders to apply for foreign currency deposits (FCDs) in preparation for gold trading in US dollars, an attempt at managing foreign exchange volatility.
Vachira Arromdee, assistant governor for the financial market operations group, said the central bank has talked with the Gold Traders Association and Thailand Future Exchange since late last year about gold trading and settlement solely in dollars.
The move would mitigate foreign exchange volatility from the gold market, she said.
The central bank is in the process of drafting legislation, while gold traders need to adjust their internal systems, said Ms Vachira.
The Bank of Thailand is open to operators applying for FCD and some have done so.
The rate-setting Monetary Policy Committee has expressed concerns over the baht's appreciation affecting Thailand's economic recovery momentum.
The standard weight unit for measuring gold in Thailand is the traditional baht unit, with one baht weighted gold equivalent to 15.244 grammes or 0.4901 troy ozs.
The standard fineness for gold is 96.5% in Thailand.
A gold industry source who requested anonymity said the central bank had a meeting with commercial banks and gold traders on July 13 to consult about the move to the domestic gold trade being quoted in dollars.
Against the backdrop of an economic slowdown, imports and exports have declined, but gold imports have increased significantly because of surging demand from investors wanting to hedge against risks through the precious metal.
The source said gold traders would have to report all trading transactions to the central bank and this could cause more workload given heavy transactions.
Tanarat Pasawongse, chief executive of Hua Seng Heng Group of Companies, said most gold traders are ready for the move as they have an electronic trading platform system to facilitate online gold trade.
Commercial banks would, however, have to work in detail about the trading clearing and settlement process because online trading needs to be completed swiftly, said Mr Tanarat.